Return Strategy

When customers ask for a refund, they’re more likely to come back

Yes... even a refund leads to a higher likelihood of a customer returning.

One of the most common questions we hear at Loop is: if a customer engages in a return event, like an exchange or a refund, does that make them more likely to come back for a repeat purchase?

To answer this question, we decided to go straight to the source. We dug through our database to see what it could tell us about return events and their correlation to repeat orders. Bottom line: when people engage in your returns experience, it’s great for business.

The impact of returns on your repeat purchase rate

We realize that you might be skeptical about this claim. After all, how can refunds and exchanges be better for your bottom line?

Before we get into the explanation, take a look at the hard numbers below. Remember: this is based on hundreds of thousands of orders from over 500 brands, so you can be fairly confident that any conclusions drawn from this database will apply to your business as well. 

Let’s take a closer look at each return event to understand exactly what’s happening.

To get these results we looked at the purchase behavior of live Loop brands as at January 1st 2020 and analyzed whether a 1st purchase returned for a repeat purchase by May 2021.

No Return

As you can see, customers who don’t engage in any return event have the lowest repeat order percentage. This doesn’t surprise us. 

We recently surveyed over 300 consumers who regularly shop online. Our most eye-opening finding was that almost 90% of customers have kept a product they wanted to return. Who cares, right? As long as you get to keep your revenue, it’s not really a big deal.

Unfortunately, that’s not the case. When customers keep an item they don’t love, it’s bad for business because they’re unlikely to make a repeat purchase, tell their friends about you, or feel any sense of brand loyalty. This is going to negatively impact all your most important metrics, from CLV to AOV.

Refund

It may surprise you to see that customers who got a refund saw a 17.8% increase in repeat purchases compared to customers who didn’t engage in any type of return event. So yes, even though you lose money on the initial purchase, you still have a higher chance of recouping those costs in the future. 

Customers who get a refund have a 17.8% higher repeat purchase rate than those who don't return any items.

If this is blowing your mind, we get it. It seems counterintuitive that a customer who asks for their money back would bother shopping with you again. But here’s what's happening: even if the customer didn’t like the product they purchased from you, they still felt that your return process was easy enough to engage with. They now know what to expect if they end up with the "wrong" product shopping with you in the future. This reduces their perceived risk of making a future purchase.

Also, refunds are still better than a customer keeping an item they don’t want. Then at least they won’t have that t-shirt or bag hanging in their closet gathering dust, reminding them of their disappointing experience every time they walk past.

Exchange

As the data shows, exchanges provide an even larger lift to the repeat purchase rate than refunds do. An exchange increases the repeat purchase rate by almost 34%.

You might be thinking well isn't every exchange technically a "repeat purchase?" Technically yes, and that's why we did not count the immediate exchange when evaluating whether they came back again. The customer had to come back for a brand new purchase to be considered.

Customers who exchange for a new product have a 33.80% higher repeat purchase rate than those who have never returned an item.

Our hypothesis on why exchanges create more repeat purchases is fairly simple. When a customer gets the "right" product they will have a better experience with that product and your brand. When they are using a product they love the likelihood that they will return increases.

If all of this wasn’t enough to convince you that return events lead to repeat customers, we also took a look at how returns influence how quickly someone returns.

Customers who have returned an item come back to make a second purchase quicker

Customers who didn’t have a Loop return on their first order had an average of 116.5 days until their second order. Customers who did have a Loop return on their first order had an average of 90.8 days until their second order.

Customers who have a Loop return event on their first order come back for a second order 25.7 days earlier (or 22% faster) than those who don't.

In other words, when your customer engages in a return event, you’re not only more likely to see them come back for a repeat purchase—they’re also going to come back faster. Specifically, they’re going to come back an average of 25.7 days earlier, which is a 22% reduction in “time to next order” for customers who returned something compared to those who didn’t.

3 strategies to boost your repeat orders via returns

Now that we understand the hierarchy of return events in relation to repeat purchases, what can you do as a brand to get your rates up? Here are the three strategies you can implement.

1. Create a customer-focused policy

Your return policy is the first checkpoint when it comes to a customer deciding whether or not to make a return. In fact, 67% of shoppers check a return policy before making a purchase. Here’s what they’re looking for: 

  • Answers to common return questions, such as the return window length and shipping costs

  • The perceived risk of purchasing from your brand

  • A sense of how easy it’ll be to engage with your return process

So if you have a rigid, unfriendly return policy, your customers are less likely to make a return. This means fewer repeat purchases for your brand. On the other hand, a flexible, customer-centric policy (like the Allbirds one below) leads to more returns and repeat customers. Make sure to check out our best practices for creating a dedicated return policy page if you’re not sure where to start.

2. Make the returns process easy

OK, now let’s talk about your actual return process. Your customer read your policy and decided that your returns experience is worth engaging with. Now you have to make sure it actually is - especially since 92% of consumers have stated that they’ll buy something again if returns are easy.

One of our best recommendations is to use an on-demand return portal. Take a look at the one from Brooklinen as an example. The benefits: 

  • Saves time for both the customers and your support team

  • Creates a clear process to minimize confusion or frustration 

  • Empowers your customers to take charge of their returns, rather than relying on the responsiveness of a support representative

3. Incentivize exchanges over refunds

We saw in the data that refunds are better than no returns. But what we really want you to focus on is the fact that exchanges are king. So, where possible, you need to find opportunities to turn your refunds into exchanges. 

Here are some of the most popular strategies we recommend. The basic premise is that you want to apply incentives to exchange. 

  • Offer free return shipping on exchanges. For refunds, charge a small shipping fee. If you’re not convinced this will be work, check out how effective this approach was for a footwear brand we partner with. After two months of charging a shipping fee, exchange rates climbed 25.4%, and refund rates went down by 28%.

  • Extend the return window for exchanges. We recently ran an analysis and found that 80% of the returns we process occurred in the first 21 days. Since you know most customers will return their items in three weeks, offer a more generous window for exchanges than refunds like Mizzen + Main. This tiered approach shows the customers who are giving your brand a second chance that you value their loyalty and want them to have as much time as they need to get the right product in their hands.

  • Provide a bonus credit for exchanges. This feature we offer at Loop gives customers additional purchasing power above the value of what they're returning. Take a look at how Baseballism takes advantage of this offering. For customers who opt for an exchange over a refund, the brand offers an extra $5 to shop with as an added incentive.

In short: yes, return events lead to more repeat purchases. However, don't forget that there are differences in the repeat purchase rates even among return events, with exchanges rising to the top in that regard. If you want to learn how Loop can help you create a returns experience that keeps customers coming back, get in touch with our team.

Read More: Ecommerce returns best practices: Shipping Fees + More

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